Polygon’s MATIC token, a top cryptocurrency, has struggled this year amidst increasing competition from other Ethereum scaling protocols like Arbitrum, Optimism, ZkSync, and StarkNet. To meet this challenge, Polygon has revealed plans for ‘Polygon 2.0,’ an upgrade transitioning the Polygon sidechain to an entire ecosystem of chains and validiums. Let’s explore what this means, how it could impact the MATIC token, and if it will succeed in making Polygon the ‘Value Layer of the Internet.’
Polygon, previously known as Matic Network, was created in 2017, and its initial product, the Polygon sidechain still in use today, was launched in 2020. Unlike a rollup, a sidechain has its own set of validators securing the network with occasional checkpoints to the Ethereum chain. In practice, this provides for greater scalability by sacrificing some level of security. This tactic enabled Polygon to secure $8 billion in total value at its peak, currently at $1 billion, making it the fifth largest chain by total locked value (TVL). However, the release and proliferation of true Ethereum rollups like Optimism and Arbitrum have challenged its dominance. While Polygon still has cheaper fees, the security provided by rollups, new and innovative dApps, and “cheap enough” transactions have proven to be sufficient to capture significant value; Arbitrum’s TVL is twice that of Polygon, and Optimism’s is about the same.
To compete, Polygon has recently announced Polygon 2.0, their plan to create the Value Layer of the Internet leveraging Ethereum. Details about this upgrade’s architecture and vision have been slowly released since June 19th, with the final announcements about tokenomics and governance expected in the weeks of July 10th and 17th.
In the announcement article, Polygon 2.0 is described as a “network of ZK-powered L2 chains … [it] will feel like using a single chain.” This will likely be similar to Optimism’s Superchains framework, which creates a system of scalable and interoperable blockchains. Additionally, they propose upgrading the Polygon sidechain to a zkEVM validium. Unlike a rollup, validiums store the transaction data off-chain instead of on the more expensive and slower Ethereum chain. The plan is to use the existing Polygon sidechain validator set, which includes over 100 validators and $2 billion staked, to ensure the existence and proliferation of the transaction data. Although some criticize the decision not to post data to Ethereum, it ultimately gives users more choices about how to choose between security and scalability and sets them apart from other Layer 2s. Validiums can also be upgraded into volitions, which allow the user to decide to post the transaction data to Ethereum or the data availability layer based on personal preference and the importance of the transaction.
The Polygon validators will include and order transactions in a block. On L2s, this job is known as being a sequencer and is centralized on Optimism and Arbitrum for the time being. If accomplished, Polygon will have the first decentralized sequencer.
Next week, Polygon will announce more details about the new MATIC tokenomics. The upgraded chain will likely continue using MATIC for transaction fees. Expected changes include a name update aligning with the current project name and a governance process for proposing and launching new Polygon chains.
Polygon’s month-long release of announcements and features has proven quite interesting and certainly makes them more competitive with the current landscape of Ethereum scalability. Succeeding as an alt L1 or L2 is incredibly difficult, especially with the number of protocols and projects building competing solutions. That being said, Polygon has the experience, technological know-how, and support to make itself a top choice in this industry.
By Lincoln Murr